Cordray Vows 'Openness' with Auto Lenders

WASHINGTON — Consumer Financial Protection Bureau Director Richard Cordray acknowledged concerns Tuesday about how the agency is regulating indirect auto lenders, vowing to be more transparent about its oversight.

The agency has been under fire since a March bulletin, which was not subject to public comment, that said the agency would hold auto lenders responsible for any discrimination made by partner dealers, whether it was intentional or not. Cordray said the agency was holding a field hearing Thursday on the issue designed to engage directly with auto lenders.

The public hearing is "to make sure that we're engaging with key stakeholders in that area," Cordray said. "And I think that's an area where I would agree with some of the criticism in that I'd like there to be a little more openness and transparency. And we're going to provide that."

Cordray's comments came at a Senate Banking Committee hearing on the CFPB's semiannual report to Congress. During the hearing, lawmakers raised concerns about the agency's oversight of auto lenders, echoing industry complaints that the CFPB is relying on estimates rather than concrete data in pursuing fair-lending cases against such firms.

The agency has been worried that some auto dealers are raising interest rates on loans to minorities, arguing that a partnering lender that is providing the financing is responsible for any disparate impact.

But industry officials and lawmakers have said the CFPB is relying on "proxy" data which estimates whether a borrower is part of a protected class. Although Cordray responded in writing to lawmakers' concerns last week, his answers did not satisfy senators.

"You described in the letter back to us the nature of that analysis, but one of the things we asked for is the evidence that the use of proxy is providing an accurate methodology to reach the conclusions that you are reaching," Sen. Jerry Moran, R-Kan., told Cordray. "Has there been analysis done to demonstrate the proxy is providing accurate information for which you are now basing decisions on?"

Cordray reiterated arguments that other regulators and the Justice Department use similar proxy methodologies, though he said the CFPB has a "scrubbed" and "refined" version. He declined, however, to disclose further analysis, saying that the agency's findings are a part of "ongoing investigatory efforts" with the Justice Department.

"Our proxy methodology is something that has been used not just in these kind of lending cases but in a variety of other cases … and is considered to be state of the art," Cordray said. "Now some people may have their issues with state-of-the-art but we're not embarking on some novel or untested or brand-new approach here."

Lawmakers also raised concerns with the data the CFPB is collecting on large credit card companies through a third-party provider. Although Cordray said the data collector removes any personally identifiable information before sending it to the CFPB, lawmakers were still concerned about its security.

"The question isn't so much about your motives, director," said Sen. Mike Crapo, R-Idaho, the top Republican on the Banking Committee. "I fully trust your motives. But as we recently saw with the Internal Revenue Service problem — and with the problems at other agencies that collect this kind of data on Americans are running into — we don't always have that kind of absolutely airtight security and protection about the data. And in fact, an agency director could someday decide that he or she wanted to use that data on a personal basis."

Cordray acknowledged the concern and welcomed any investigation into the bureau's security methods but was adamant that data would not be compromised, especially by him.

"You're right to have this concern and I want you to know that I hear you loud and clear in having this concern," he said. But "if I, as the head of this agency, were to do anything like what you just described could be done; there is nothing stupider I could do that would more undermine the mission of this agency. That is the last thing that I would ever want to do and that any of us at the agency would want to do. We need data and information in order to be able to do our job."